House #1: Summer Update

August 23, 2010 · 12 comments

I’ve had a couple people ask me for an update on The Corn House, and I realized that it’s been a while since I’ve even mentioned it…

My last update was in May, at which point the lease-purchase tenants were making progress on their credit and we were pursuing both FHA and NACA financing for them. Unfortunately, because NACA is so backlogged, their appointment was pushed back several times, and ultimately, we’ve decided to pretty much give up on that route. But, we pulled their credit again a couple weeks ago, and things are continuing to improve.

When we first met with these tenants in 2009, their high credit score among the three reporting companies was around 540 (with the other two bureaus not having any score at all). Now their high score is up to 640 and their other two scores are in the upper-500s. Because their main issue was lack of credit, in addition to the credit score improvement, the tenants got their first (secured) credit card earlier this year, and are working on two more. FHA wants to see at least three open lines of credit these days (with on-time payments), so getting these additional two cards will help them tremendously towards getting their financing.

My broker is convinced that if they keep on this path, they will qualify for FHA financing in the next 12 months, and potentially in the next 6 months. This is a long departure from the planning Fall 2009 closing we were hoping for last year, but the tenants continue to pay their rent on time every month and now have $8000 built up in escrow towards their downpayment and closing costs.

12 responses to “House #1: Summer Update”

  1. ezra says:

    At what point do you hope this doesn’t work out so you can keep the escrow?!

  2. Atlanta REIA says:

    We always put our owner financed buyer and lease option tenants on a credit repair program so they can cash us out as soon as possible. Thanks for the update!

  3. Ingrid says:

    Thanks for the update! It’s a shame they missed the first time buyer’s credit, but as a wise comedian once said “You can’t have everything – where would you put it?”

  4. J Scott says:

    Atlanta REIA –

    Agreed. Our tenant/buyers have been working with our credit repair company for nearly a year now…things are moving forward steadily but not quickly…

  5. J Scott says:

    Ez –

    I get this question a lot. My preference is not to take the escrow at any point. First, I would hate to take such a large chunk of cash from a family that is doing their best to improve their credit and who is consistently paying their rent on time each month (in other words, they haven’t done anything wrong); and second, I would probably end up making less profit if they moved out and I had to do some rehab to get it back into pristine condition for sale.

    So, as long as they continue to improve their credit and as long as they continue to pay their rent on time, we’ll continue to extend their contract. Worst case, they’ll have the property paid off (with interest) in about 10 years, and we’ll just hand them the keys… 🙂

  6. Luis says:

    Ezra, that’s messed up.

  7. Devon says:

    What type of credit repair program/company do you guys put your owner financed buyers and lease option tenants on to improve their credit?

  8. J Scott says:

    Hey Devon –

    At this point, I haven’t been happy enough with any of the credit repair companies to recommend them by name, but there are a couple out there that I’ve worked with. Generally, for about $50-75 per month, they can most typical low credit scores up within 12-24 months, assuming there isn’t anything too complicated (like a bankruptcy or child support back-payments). The good companies will argue away the big negative things on the credit, tell you which collections to focus and not focus on, recommend whether you should get additional lines of credit, help you do that, etc.

  9. J Scott says:

    Luis –

    Ezra is just jealous that I’m actually getting positive cash flow…his rentals are up in D.C. where he’s getting $5000/month and still losing money… 🙂

  10. ezra says:

    Your readers can learn just as much from my poor attempt at conducting business as they can from reading your blog. I’d write a book, but I would just screw that up too!


    ps. Can I borrow that escrow money for the time being?

  11. Don Hines says:

    I have never explored Credit Repair companies. Do they charge you as well as the tenant?
    I have checked into NACA. They were very adament that they brought the buyers to me. Not vice versa (ha).

  12. J Scott says:

    Don –

    Credit repair companies generally only charge the buyer, but if you are paying on their behalf, you’ll have access to their info and progress.

    As for NACA, they really seem to dislike sellers and agents. They are very pro-buyer and tend to believe that sellers and agents are just vultures. So, they don’t like dealing with people like you and me.

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